How to SAVE TAX & Protect your Property Portfolio in 2022 | Investing in Name vs Trust vs Company

okay everyone my name is pika and here i've got emmanuel from ah jackson he's a partner at that firm in this video we're gonna go through tax and accounting like i know it's kind of boring for some people but for emmanuel and myself it's completely not boring because this is a game changer to save tax to protect your assets and just structure things properly for property investors so if you're an established property investor or you're a brand new property investor these kinds of conversations these kinds of um strategy discussions should come even before selecting suburbs all right this is a preliminary so the next 10 15 minutes will be you know um putting pressure here on a manual he'll be dropping some some value bombs so make sure you stick around until the end but without sort of further adieu manual thank you i'm very grateful so obviously for you to make the time no worries thank you for having me pk it's a pleasure and i should also just add emmanuel i've i've worked with um a bit now and you know he's not sort of just some run-of-the-mill he probably won't like me saying because he's not sort of sort of just some run-of-the-mill accountant you know he's kind of top shelf um sort of stuff so you know it's it's actually uh you know this kind of content you it's pretty it's pretty honorable um and i'm very grateful for you for your problems now we we try and think a little bit different that's all creativity is the the art of the game and i think first question if we just kind of um we get into it like you know the the question that i get asked the most is like even just at a high level why is considering which entity structure um to buy and why is that critical like why is that even important isn't suburb selection and all that other stuff more important but what's what's in this i guess from a really high level point of view i mean there are some savings that you can have with one is land tax so if you have all your eggs in one basket eventually you run out of room for land tax um and the state government will start hitting you with an additional tax which um yeah is not it's not a great thing it just costs money and you shouldn't have to have to pay extra money for that sort of stuff um from a high level also depending upon your risk profile um you know it might be worthwhile to protect your assets within a trust structure in certain circumstances it works others it doesn't um and then third of all you know ultimately with a trust especially discretionary trusts positively geared properties you know you've got excess income which means they need to be distributed the profits need to be distributed so if you have a choice as to where to distribute the profits to versus being stuck with an individual ownership then obviously you could potentially mitigate some tax exposure and cheapen your overall burden of tax they're your main sort of three critical critical critical points that you need um but that being said asset protection isn't always you know it's not 100 protected because your seed capital is also important in a trust okay because it would be in us alone and that's still an asset of yours so you may unwittingly unravel your asset protection by not doing it properly okay yeah gotcha and you know like certainly when i was started in property investing people talk about buying in your own name they say that's the simplest way which is true then some people say to buying a trust you've just touched on that and then there were some fancy companies that were talking about hybrid trusts and then some people were telling me to buy in company structure because that's what they had done in the us and you know or overseas and they'd said you know always invest in a company structure so obviously none of this is personal advice but like what are the you've kind of touched on the key tenets but like for someone who doesn't know anything what are the sort of key pros and cons of buying in a in your personal name versus a trust versus a company yeah so usually it centers around obviously an individual in a trust um can achieve what they call the cgt discount on the sale of the property okay whereas a company doesn't get that so by that i mean any capital gain on the sale of a property you get half of the tax free if you own it in an individual name or a trust okay whereas a company you don't you just whatever the profit is you pay a flat 30 percent and then it's in the company and to get it out you have to pay dividends down so the profits come out via dividends which means if your personal income rate is high you actually pay a higher rate of tax overall now that's not saying companies are not good entities to have they to hold property it just depends on your overall structure because sometimes when you get to a certain level companies you can invest in property because you save um some type what we call top-up tax if you're in business you get to save it on one side so you get more money to be able to use as deposits but ordinary you know sort of people that don't have elaborate structures we usually head towards holding appreciating assets within you know an individual or a trust structure just because you achieve the cgt discount okay yeah gotcha and i think one thing i just wanted to touch on like you know all over the internet you see people i shouldn't say people companies advertising that you should buy an investment property to save tax you know you buy everyone's heard of that right you're smiling center i know we're on the same page on this right brand new house land package or whatever it is out in the sticks and it's you know huge depreciation benefit and someone unwittingly run knowingly from sydney melbourne let's say buyers in brisbane out in the fringe areas brand new place because they've been sold you know the fact that they're going to be able to save lots of tax and for them you know they're on the highest tax bracket market making 200 200 k um a year and they're like well no brainer right like let's save some tax um like in my mind it never makes sense to lose a dollar to get 50 cents back but like what's been your experience with that is that something that um you think is just a terrible strategy or could it work or you know i know that do you have to pay some of that depreciation back to the ato if you sell it could you in the future could you just kind of cover that emanuel yeah look um i agree with you pk that to hand over one dollar in cat especially cash to get 50 cents back you know seems silly because the property price has to obviously go up in value by at least that amount every year that you own it to break even let alone account for for winning okay now the depreciation deductions that you're talking about you know it's usually in your purchase price so you've outlined it it's borrowed you get these depreciation deductions but so the depreciation parts are okay it's your capital works they call it so to do with the building costs so basically what happens is they need to get added back to the calculation of your capital gains overall capital gains tax um so even though you get the deduction the tax man clause some backup from the sale of property as well so it's not all tax free unless you own the property um pretty the rules coming in which yeah for most people today it's not going to be applicable so there is a clawback provision within the council as well so um yeah i i agree with you 100 pk it's still going to be a sound investment choice um rather than doing anything for a tax deduction that just doesn't make sense to me yeah so is this a is it a fair summation then to say let's say you bought a property and there's ten thousand dollars of um capital works depreciation per annum so you know you hold that thing for ten years um obviously that improves your cash flow saves tax in those 10 years yep but 10 000 per year times 10 years 100 000 when you sell that that hundred thousand gets added to any capital gains and so therefore you have to pay your marginal tax rate at that correct correct yep so it does yeah it claws it back that way so it takes it away essentially takes it away from your cost base so right so short-term benefit long-term pain sort of thing yeah it's still gonna make sense from a investment choice that's how i always look at it yeah no that that makes sense and and maybe like a little bit of an intricate question if you don't mind for business owners you know a whole bunch of property investors are business owners and i see on forums and i you know barbecue talks people throw around terms like bucket companies and you know which before started starting working you know when we started having discussions i i fully didn't recognize the importance of myself if i'm telling you the truth for business owners who are buying investment properties and a little bit more sophisticated how should they structure things obviously just general advice but maybe personal name isn't the best maybe in a company or maybe in a trust is better and how does like the bucket company how does that sort of help yeah so i guess bucket companies are like a i call them the family bank for the for the group so usually they the trust a trust within a family group will feed profits into a bucket company so everyone else what it means is everyone else's taxable income has been maximized up to potentially you know up to the top of the 2.5 or top of 37 bracket and we don't want to pay higher rates so we say look we don't want to pay that rate we'd rather pay a corporate tax rate so therefore the trust will distribute to the bucket company rules have been in place now that the ato wants you to push the cash into these bucket companies so as long as you do that you know you don't have to comply with other more complex rules under the division division 7a regime so once this money is in there though you've got to still decide what to do with it so this is where we i talked about earlier where sometimes you know it might make sense to go well i've only paid a 30 tax rate i'm going to buy properties in companies because i don't want to pay any further that was the whole point of distributing to the company you don't want to pay that what we call top-up tax so you go well look you know and as the numbers get bigger so if you're talking about a million dollars there's a sort of a you know a bigger tax saving to be had by achieving a 30 tax rate and that can be used then for your deposit so that means you have to borrow less going forward um or you can spread it out over a number of opportunities and you say well i'm going to give away the cgt discount i know that but if you're an accumulator of property then i'm not selling so cgt isn't really that big a deal for me and you get to keep that extra tax that would ordinarily have gone to the tax man to help purchase more properties and take advantage of opportunities as they come up so that's the good way that bucket companies are used they're not just a tax minimization strategy they can be used to help fund and grow wealth as well if used okay so the bucket company by distributing um income and having the bucket company as one of your beneficiaries um you can pay that 30 tax and then invest from that bucket company into other properties and as long as you're not using it for personal consumption you've never had to pay you know so if you yeah if you utilize it so a company to from company to company you're outside the division 7a rules but if you take the money from that bucket company and purchase a property in a trust then you fall back into the into the rules okay of division 7a which means you have to make minimum repayments and and you know it might and it's over a shorter period of time over seven years so it does place some cash flow strain on repayment cycle so it's it does get a bit more complex and everybody's circumstances might be different but um in its pure form if you just use a bucket company and then acquire investments from there in other corporates you can kind of delay or avoid not avoid but defer paying any top-up tax legitimately but you you cross that off with not having a cgt discount on the sale of the property if you keep using corporates okay yeah so that's why the use of of companies to buy property sometimes you it's more akin to people in business that don't want to pay that top-up tax versus salary and wage earners or you know people with other circumstances okay yeah i think that's the way i sort of assimilate it in my mind as well if you're a a wage earner payg then in most instances not not every instance but in most instances it makes more sense to bind your own name or in a let's say a discretionary trust or something like that and if you do have a business then that's when it starts to make sense to buy in a corporate and a company and utilize the bucket at least considering it in that fashion anyway right yeah and obviously it's a bit of a different way of thinking but it it you save on one side but you give away something on the other so you just got to balance it out yeah what's what's most important there's no perfect structure that's what you always say so never making those trade-offs and and so like let kind of ask you a question right like and i'm i'm asking this from the perspective of having people learn from this um what's kind of like you know the biggest structure fail or mistake that i don't know maybe you've made or you one of your clients has made that you know you were kind of just when you saw it you're like you know fell off your chair and you're like that like that's literally losing thousands or tens of thousands or hundred thousand what can people learn from that i can tell i was one of my good mates actually he went to some property this is years ago went to some property seminar then turned up into my office with this brand new trust with the corporate trustee and contract for this property that he just purchased as a result as well and anyway i kind of worked through and i went okay you are a salary and wage earner you don't have any risk well sorry i'll come back i said why did you do this he goes on asset protection and tax benefits and i said okay but you didn't ask me about this and he said okay no i said well let's break it down you're a salary in wage earner and you're going to be forever because that's that's and it is still to this day so i said your risk of getting sued for what is because oh there's none i said okay so that was not a good thing to do it for i said this property is negatively geared and you've got massive you know these depreciation deductions so you're in a lost position and he said oh can't i offset them against my personal tax i said no because the loss stays in the trust so your whole tax benefit is locked so i said you've pretty much done it for no good real reason i said just out of interest also how much did you pay for this trust because did and he said oh i think in the day it was three thousand dollars and i said okay because that's a lot of money on top of it so i said um so that's probably the biggest fail i've ever seen in my entire life from everywhere because he didn't come and talk to his accountant who's his friend first on top of it let's just say it was um an interesting conversation yeah and then there's a maintenance cost right like it's not just three thousand dollars one off to maintain a trust and this is the thing right and i don't know if you agree emmanuel but try to keep it simple like most people should just try to keep their structuring simple yes you should chat to someone like emmanuel to see if there's something where you can optimize things but for most people keeping it simple is the cheapest and most effective way anyway and yeah i'm i'm all for that as well because there's no point in complicating people's lives for no good reason um there has to be a good reason for why you would structure otherwise there's no point yeah no i could take i mean you're infinitely more experienced than i am in terms of all the structure stuff but as you know emmanuel our structure is not the simplest anymore and to some extent just goes over my head so yeah take it from me to keep it simple otherwise you need like a a flow map just to kind of on a whiteboard to just understand your money visualize and that's for most people that's not a good good place to be no don't don't you don't need structures um you know if you don't need it like there's no purpose yeah doing it and your circumstances change but that's why i think it's important to sort of talk to somebody who understands this stuff and then because we'll ask questions usually about yes your current circumstances but what are you kind of you crystal ball a little bit and your intentions going forward and life changes as well so you know the biggest thing with property is every time you you want to change ownership or something like that stamp duty comes into play and you don't really want to have that horrible waste of money for nothing okay so that's just something that you should always always kind of be mindful of have an idea for now but half an eye on the future a little bit as well so right and i suppose that's where your um your tax accountant comes into it having half an eye for the future asking those questions at least letting you know what's um what's possible like there's an element of people like me may we don't know what we don't know perhaps especially if you're brand new so i think that's where the accountant comes in and um answer how like maybe last question if you don't mind emmanuel obviously you know i highly recommend you from ah jackson um but let's say you know people aren't interested in working with you and by the way i should say you know an accountant is a national license so he doesn't need to be state by state or or anything like that but how how does one go about let's say they don't know anything how does one go about finding a good um accountant uh someone that will actually help them um i always find even in my own network word of mouth is still the greatest um greatest thing you can have so um if your contacts people you rely upon or trust are suggesting someone at least go and have a talk to them have talked to a couple of people to be honest um because personality has to come into it as well because you could have the greatest account but if you don't like them you're not going to communicate with them really at the end of the day and you need to have that interaction in my mind but i still think personal connections and personal referrals or from people you trust is always a good way to start don't believe the advertisements is my my view as well um anyway no for sure and that that's how i sort of found most of my team um as well so i can totally sort of agree with that and a bit of a controversial thing that i'll say is like you know if an accountant has been around for a while and they need to advertise to get clients then there's not a blanket rule but there seem there might be something dodgy with that because if they're experienced and they need you're seeing their adverts everywhere and they're kind of in your face then the either they've scaled too much and you know you're not going to get that personal service or for some reason they're turning over clients that's that's just a kind of a generalization just from my personal experience but yeah go with someone that a friend of a friend someone who you can trust and for me definitely emanuel from ah jackson is is someone like that he's based in brisbane obviously you don't need to use him you can find someone yourself but yeah it's a national license um but thank you yeah i mean first of all thanks for everything you do for me and um it's a pleasure for making time any last comments or or um value bombs as they say that you want to leave behind um there's make sure you talk to someone who can help advise you because um the other point that we didn't touch on is you know make sure you structure your loans correctly to take advantage of interest deductions and things like that as well so um you've got to do it in a particular way to make sure that you get your interest deductions so that's the other that's the other big thing that i see but just um your best to talk to somebody get some advice that way it's done properly and you can maximize any tax benefits that you can okay yeah that's what i should say to you for sure no that's a good call out offsets versus redraws and that's a whole whole thing that we can go into as well but um thank you emmanuel and and thanks everyone for uh for watching as well i hope that got that sort of gave you value it's kind of a really deep topic and you can go you know really deep into particular tentacles of it and it gets really niche real quickly so i just wanted to leave it at that high level but if you guys have any questions feel free to comment below i'll try to answer them otherwise just reach out to emmanuel and yeah best of luck subscribe below and i wish you all the best with your property investing catch you later thanks emmanuel thanks

Channel: Australian Property Mastery with PK Gupta

Views: 32,113

Keywords: Real estate Australia, Real estate investing, australian property, australian housing market, australian economy, australian property investment, australian property market, buying property, australian real estate, economics explained, Binvested, Property couch, The property coach podcast, Mortgage Brokers Brisbane - Hunter Galloway, David Quan, heise says, first home buyer, searchpropertytv, personal finance with ravi sharma, pumped on property, save tax australia

Id: mOSMOCEJsIc

Length: 23min 17sec (1397 seconds)

Published: Sun Apr 10 2022